Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $300,000 for the year, and machine usage is estimated at 125,000 hours.

For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

Required:

A) Compute the manufacturing overhead rate for the year. B) What is the amount of under - or overapplied overhead at December 31st? C) Prepare the adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold.

A. The manufacturing overhead rate for the year is $2.40

B. The amount of under - or overapplied overhead at December 31st is $10,000

C. The adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold would be as follows:

Debit Credit

cost of goods sold $10,000

Manufacturing overhead 10,000

Explanation:

A. To calculate the manufacturing overhead rate for the year we would have to use the following formula:

manufacturing overhead rate=Estimated overhead cost/Estimated machine hours usage

manufacturing overhead rate=$300,000/125,000

manufacturing overhead rate=$2.40

B. To Calculate the amount of under applied or over applied overhead cost we would have to use the following formula:

manufacturing overhead cost applied=Total machine hours used*manufacturing overhead rate

manufacturing overhead cost applied=130,000*$2.40

manufacturing overhead cost applied=$312,000

under - or overapplied overhead cost=Actual manufactured overhead costs-Manufacturing overhead cost applied

under - or overapplied overhead cost = $322,000-$312,000

under - or overapplied overhead cost = $10,000

C. The adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold would be as follows:

Debit Credit

cost of goods sold $10,000

Manufacturing overhead 10,000

A. $2.40 per Machine hour

B. Underapplied = $10,000

C. cost of goods sold (debit) $10,000, overheads (credit) $10,000

Explanation:

A) Compute the manufacturing overhead rate for the year

Overhead Rate = Total Fixed Overheads / Budgeted Activity

= $300,000 / 125,000 Machine hours

= $2.40 per Machine hour.

B) What is the amount of under - or over applied overhead at December 31st?

Under Applied Overheads = Actual Overheads > Applied Overheads

Over Applied Overheads = Actual Overheads < Applied Overheads

Actual Overheads = $322,000

Applied Overheads = $2.40 * 130,000 hours = $ 312,000

Underapplied = $10,000

C) Prepare the adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold.

cost of goods sold (debit) $10,000

overheads (credit) $10,000